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CALIFORNIA RETAILERS: THUMBS DOWN ON DAVIS

If the recall effort against California Gov. Gray Davis were limited to the food industry, he might lose in a landslide.At least that's the way it seemed last week when SN interviewed several industry executives, most of whom roundly condemned the governor, currently in the first year of his second four-year term. Most said they believe a change in the governor's mansion following an Oct. 7 recall

If the recall effort against California Gov. Gray Davis were limited to the food industry, he might lose in a landslide.

At least that's the way it seemed last week when SN interviewed several industry executives, most of whom roundly condemned the governor, currently in the first year of his second four-year term. Most said they believe a change in the governor's mansion following an Oct. 7 recall election will improve the position of business in the state.

Among the causes cited for their disaffection were escalating workers' compensation rates, the state's $38.5 billion budget deficit, and the apparent lack of concern for business in general.

Peter Larkin, president of the California Grocers Association, Sacramento, said reform of workers' comp is at the top of CGA's agenda, "and we're still hopeful we can get some action taken before the current legislative session ends in mid-September.

"But even if we can get a bill on the governor's desk, we have to assume that he will consider everything in terms of how it helps or hurts him in the recall contest, and that's not good for us because there are so many groups lined up against the reforms we support that it appears unlikely we'll get anything meaningful passed."

Larkin said he thinks the recall process is not productive from the association's point of view. "The situation in Sacramento has been rather chaotic, with the recall disrupting the natural order of things, and the fact that it's not business as usual is not good for the process."

Two California retailers cited workers' comp as a compelling reason to oust Gov. Davis.

Darioush Khaledi, chairman and CEO of K.V. Mart, Carson, Calif., operators of 22 Top Valu Markets, said the recall is "the best thing that could happen to California. When Pete Wilson [Davis' predecessor as governor] left office, our annual workers' comp costs were $600,000, but today, with the same number of employees, we're paying $3 million a year because they keep changing so many laws related to workers' comp."

Morrie Notrica, owner of Thirty-Second Street Market, Los Angeles, said a combination of workers' comp costs and rising insurance rates were part of the reason he decided to sell four of his five stores this year.

"It's very tough to operate in this state. While there were other reasons I sold the stores, those reasons were compounded by the fact I can no longer pay the insurance or workers' compensation claims. And everything the state is taxing is related to our business, including soda, diapers and cigarettes -- I'm not sure I want to keep selling cigarettes," Notrica said.

Asked whether the governor is to blame for all of that, Notrica replied, "He's the leader, and the buck stops there. So the faster we get Gray Davis out of there, the better we'll all be."

According to Steve Soto, president and CEO of the Mexican American Grocers Association, based in Los Angeles, "Hopefully we can get someone in there who understands business and who wants to work with business."

Soto said he favors Arnold Schwarzenegger to replace Davis, rather than the state's lieutenant governor, Cruz Bustamante, "because Bustamante has gone on record saying he wants to raise taxes on cigarettes, beer, alcohol and snacks. For an industry like ours, which provides so many jobs and so many entry-level jobs, that doesn't make sense.

"We need a governor who looks at who provides revenue to the state, which is what our industry does, but they can't keep hammering at us."

Bill MacAloney, owner of Jax Markets, a four-store group based in Anaheim, said he expects the recall to succeed, "and I hope whoever who replaces Gray Davis will be conservative on spending and have the business sense to know how to get the state back on track to eliminate the $38.5 billion deficit."

According to Jack Brown, chairman, president and CEO of Stater Bros. Holdings, Colton, Calif., "If a CEO took over a company with a $5 billion surplus and a year later he had a $38 billion deficit, he wouldn't be CEO much longer. Voters in California have had enough, and they want a change because they've been ignored for too long by political power brokers from both parties, and like the slogan in that movie ['Network'] a few years ago, they're mad as hell and they're not going to take it anymore."

Brown recalled a meeting he attended earlier this year with the CEOs of 20 prominent Southern California companies during which someone asked whether any of them would be willing to keep their corporate headquarters in California if they could run their businesses from out-of-state without any other changes to their operations, "and not one executive said yes," he recalled, "due primarily to the state's high workers' compensation costs and high utility costs, which are usually cited as the two major reasons why companies are moving out of California," Brown said.

Kevin Davis, chairman, president and CEO of Bristol Farms, Carson, Calif., cited energy costs and the budget deficit as reasons he favors the recall, noting that his energy bill at one store during what he called last summer's "energy fiasco" rose from $15,000 to $34,000 in a single month. "In addition, workers' comp is out of control, with costs for most of us doubling in less than two years. And no one can understand how a state with the highest tax base could overspend to get to a $38 billion deficit."

Davis said the recall process is "a bit of a circus, but the opportunity it provides sends a message to all politicians in California that they've got to deliver what they got elected to do."

Two industry executives interviewed said they don't believe Davis deserves as much blame as he's getting.

Bob Piccinini, chairman of Save Mart Supermarkets, Modesto, Calif., said, "I'd just as soon there not be a recall because I don't think the problems were all created by Davis, and I don't think anyone else can fix them easily. It's just been a series of freaks of nature that have been occurring to create all these problems at once."

He also said he believes people are looking for excuses to keep Davis in office, "and I think if he does a good job between now and the election, voters will opt to keep him. It all depends on what happens between now and then."

At this point polls indicate Davis will lose the recall vote, but Piccinini said he doesn't always believe the polls. "When people are questioned by pollsters, they are apt to say, 'Throw him out.' But when they get into the voting booth and close the curtains, I believe they would just as soon not vote for recall."

Al Plamann, president and CEO of Unified Western Grocers, Los Angeles, said the recall process "will slow up efforts to get the state back on track, so I don't like it. And while I'm not sure Gray Davis can get it back on track, he happens to be the one in power and he knows where all the switches are."

Plamann said he puts most of the blame for the state's ills on the legislature, "which has made it costly for businesses to operate in this state. The legislature has been very negative toward business in California, and I don't know if Davis can turn that around. And whoever is elected is going to have to do battle with that legislative attitude that's detrimental to the state. That attitude has existed for the last two or three years, and it doesn't make sense, and it doesn't have to be that way.

"But while Gray Davis has significant influence over a large group of legislators who could make a difference, his constituencies go beyond the legislature to the groups that have supported him and contributed to his campaigns over the years, and he has to turn a lot of legislation in their direction, and it's that political trade-off that has created some of the problems we have."